What is Infrastructure Investment Trust?

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Power Grid Infrastructure Investment Trust| InvIT | The initial public offer (IPO) by Power Grid Infrastructure Investment Trust (PowerGrid InvIT) opened for subscription on April 29. The company has fixed a price band of Rs 99-100 per unit for its Rs 7,735 crore initial share sale, which will close on May 3.

For the first time, a state-owned entity is monetising its infrastructure assets through the InvIT route. PowerGrid InvIT is also the third InvIT to be listed in the domestic equity markets, after IRB InvIT and India Grid Trust both of which went public in 2017. Shares of IRB InvIT have declined 47% from its issue price of Rs 102, while India Grid Trust has advanced 26% since its listing in May 2017.

If you are thinking to invest in InvIT, here is all you need to know about the investment option:

What is Infrastructure Investment Trust?

An infrastructure investment trust, or InvITs, is a collective investment scheme similar to a mutual fund, which enables direct investment of money from individual and institutional investors in infrastructure projects to earn a small portion of the income as a return.

REITs Vs InvITs

The main objective of InvITs is to promote the infrastructure sector by encouraging more individuals to invest in it. The cash flow which is generated from InvIT is distributed among investors as dividend income. When compared to Real Estate Investment Trust or REITs, the structure and operation of both are quite similar. REITs invest in commercial real estate. They earn rental income from their holdings which is passed on to investors.

Purpose of InvITs

The purpose of InvITs is to enable infrastructure companies to repay their debt obligation quickly and effectively. Since infrastructure-oriented projects tend to take time to generate substantial cash flow, InvITs come in handy for paying off loan interests and other expenses conveniently.

Minimum subscription amount

Investors are required around Rs 1 lakh to bid in the IPO of infrastructure investment trusts. Those with investments worth less than Rs 2 lakh are considered retail investors in India’s capital markets. You have to purchase a minimum lot while buying InvIT even after it listed on stock exchanges. For instance, for IRB InvIT you have to buy at least 2,500 units from the secondary market.

Should you invest?

The Sebi Regulations do not permit any assurance of fixed return in an InvIT structure. Therefore, investors should consult their financial advisors before taking any positions in InvITs.